What does it mean to be wealthy? While there is no right or wrong answer, a recent 2021 survey conducted by Charles Schwab suggests Americans believe $1.9 million in net worth qualifies as wealthy. While most consider accumulating this kind of wealth a herculean task, only reserved for a select few, the truth is anyone can achieve significant wealth if they follow some simple, time-tested rules. See below for more details.
Live Beneath Your Means
The road to wealth accumulation begins with living beneath your means. While it is easy to become a victim of living beyond your means due to family pressures, societal pressures, and our tendency to compare our lifestyles to others, we must fight this tendency and instill discipline in our everyday life. I recommend taking inventory of the things you truly value in life and limit/cut out everything else. To help with this, detailed budgets are a must! Achieve buy-in from other members of your family and hold each other accountable when deviations from your budget occur. Remember that you are playing a long game, and every little bit counts when you are trying to accumulate real wealth.
Save Early, Save Often
By living beneath your means, one increases their ability to save even in the face of temporary dips in income (See 2020 and Covid-19 pandemic as an example of short-term shocks!). I recommend establishing 3-6 months of your expected cash flow need in emergency savings first, then look to direct follow-up savings towards investments in stocks, bonds, real estate, etc. The key here is longevity and consistency! Save as early and as often as you can to give your money the maximum amount of time possible to work for you. Think of the money you have invested as personal assistants to aid you on your journey to personal wealth. The more assistants you have, the easier your journey will be.
Invest with Purpose and Discipline
Henry Kissinger once said, “If you do not know where you are going, every road will lead you nowhere!” To that end, you must first create purpose and direction through the development of financial goals before you can create a plan of action. Next, establish your investment discipline, which should be grounded in a few simple rules:
1) Understand the fundamentals of what you own
3) Monitoring and rebalancing to manage risk, and
4) Avoiding the psychological/emotional variables that lead to devastating investment mistakes
For most, #4 is the most difficult! Finally, conduct an honest self-assessment of your investment history, and if you fall short in any of these areas, it may be time to seek some help.
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Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.